Boston Fed: N.E. businesses optimistic going into 2014

New England business owners conveyed strong optimism about prospects in 2014, with sales or revenue increases reported throughout the retail, manufacturing and consulting sectors, according to the Federal Reserve Board’s Beige Book released Wednesday. More

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Boston Fed: N.E. businesses optimistic going into 2014

BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, most New England business contacts saw rising sales or revenue in the last six weeks, and expressed an overall positive outlook going forward into 2014.
Posted 1/15/14

BOSTON – New England business owners conveyed strong optimism about prospects in 2014, with sales or revenue increases reported throughout the retail, manufacturing and consulting sectors, according to the Federal Reserve Board’s Beige Book released Wednesday.

Health care consultants made the strongest showing in the fourth quarter, feeding on heightened demand driven by providers who need help ensuring their compliance with the Affordable Care Act. Consulting firms facing the strongest demand have raised their service rates and rapidly increased hiring, although some have had difficulty recruiting qualified software engineers and IT personnel.

At the same time, regulatory compliance costs among health care consultants have skyrocketed due to “fragmented state regulatory frameworks,” while the Fed’s other consulting contacts cited minimal cost increases. Wages at consulting and marketing firms have risen between zero and 3 percent, and industry growth remains strong in general, with most contacts concerned primarily with firm-specific factors rather than overarching economic trends.

“Overall, consulting and marketing contacts report that large corporate clients have cash and are increasingly willing to spend it,” the report stated. “Contacts are positive about 2014 and expect their recent growth to either continue or increase.”

Manufacturers also communicated a positive outlook for 2014, with eight of the Fed’s 11 industry contacts citing increased sales volume during the last six weeks and as many reporting increased capital expenditures. Many manufacturing companies maintained high inventory levels in December but indicated plans to reduce their inventories.

Prices are generally steady, with most respondents reporting little pricing pressure from either suppliers or customers. Two exceptions were a frozen fish producer, who said shrimp and haddock prices have risen dramatically, and a manufacturer of parts for commercial aircraft under pressure from Boeing to lower its prices.

Most manufacturing contacts reported modest hiring plans, in line with or below sales growth.

Citing improved consumer sentiment, retailers reported year-over-year sales changes ranging from a low single-digit decrease to a 10 percent increase, as demand remained strong for apparel, home furnishings and home-improvement products. Most contacts continued to cite steady prices and predicted modest price increases in the range of 1.25 percent to 2 percent.

One contact expected constrained consumer spending in 2014 due to rising financing costs for mortgages and automobiles, given that wage increases remain modest, but most said consumer confidence would continue to improve on a better outlook for the U.S. economy.

Commercial real-estate leasing activity held steady in December, while investment sales and construction remained robust, the Fed reported. The education, health care and life sciences sectors specifically have driven significant construction activity in recent months, and the number of retail projects under construction in the greater Boston area appears to be rising.

“In Rhode Island, commercial leasing inquiries picked up modestly in December, but new tenants are still scarce,” the report said. “Investment sales activity in the state remains brisk and new developments – driven by the education sector – are slated for downtown Providence.”

Contacts across the region cited reduced economic uncertainty and improved economic momentum as reasons for optimism going into 2014, although lenders still face increased competition and “steady, intense pressure” on interest-rate spreads, as well as the trend toward office downsizing on a space-per-person basis.

In the residential market, Rhode Island joined Maine and Vermont with October and November home sales above levels a year earlier, while Massachusetts, Connecticut and New Hampshire saw falling year-over-year sales. Mirroring nationwide trends, the median sales price for single-family home rose in four of the six New England states, including Rhode Island.

“Despite the recent decline in unit sales, New England Realtors agree that 2013 has been a good year overall, and they remain optimistic about sales increases looking forward,” the report stated.

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